NHS Pension Scheme Cornwall LMC – April 2015 Luke Bennett Alan Turner

Speakers Luke Bennett Chartered Accountant and Chartered Tax Advisor Healthcare partner for Francis Clark LLP Based in Truro, Cornwall Act for 50 GP Practices Director of aisma

Speakers Alan Turner Chairman of Francis Clark Financial Planning Limited Chartered Financial Planner

Programme /2008 and 2015 Schemes 2.Pension flexibilities 3.Annual allowance and Scheme Pays 4.Lifetime allowance 5.Protections available for lifetime allowance 6.Interaction with personal pension funds 7.Decisions, decisions 8.Q&A

1995/2008 and 2015 Scheme Officers Contribution rateEmployee 5% to 14.5% of pensionable pay + Employer 14.3% Pension1/80 th of final year’s salary per year of membership 1/60 th of final year’s salary per year of membership 1/54 th (1.852%) of career average revalued earnings (CARE) Automatic lump sum3 x pensionNone Abatement of pension for lump sum Option to exchange £1 pension for £12 lump sum up to a maximum of 25% of the capital value Normal pension age6065State Pension Age

1995/2008 and 2015 Scheme Practitioners Contribution rateEmployee 5% to 14.5% of pensionable pay + Employer 14.3% Pension1.4% of career average revalued earnings (CARE) 1.87% of career average revalued earnings (CARE) 1/54 th (1.852%) of career average revalued earnings (CARE) Automatic lump sum3 x pensionNone Abatement of pension for lump sum Option to exchange £1 pension for £12 lump sum up to a maximum of 25% of the capital value Normal pension age6065State Pension Age

1995/2008 and 2015 Schemes Joined NHS scheme before 1 April 2008 – 1995 Scheme Joined NHS scheme before 1 April 2015 – 2008 Scheme Some members of 1995 Scheme chose to switch to 2008 Scheme On 1 April 2015 all existing members of 1995 & 2008 Schemes join 2015 scheme except for: Those within 10 years of normal pension age at 1 April 2012 – full protection Those more than 10 years but less than 13 years 5 months of normal pension age at 1 April 2013 – tapered protection

1995/2008 and 2015 Schemes Pre 01/04/15 members will continue to have benefits in two schemes 1995/2008 benefits can be claimed at 60/65 by taking 24 hour retirement Or earlier with reduction for early payment 1995 members can’t build up further rights in 2015 scheme 2008 members can build up further rights in 2015 scheme 2015 benefits Take at same time as 1995/2008 benefits with reduction for early payment Take at State Pension Age without reduction Any time between the tow Or, after State Pension Age with addition for late retirement Added years benefits can be taken separately from 1995/2008 benefits

& 2015 Scheme Partial retirement Optional flexibility for member between 55 and 75 GPs – “engagement in business” reduced by at least 10% Claim between 20% and 80% of full pension Can claim partial retirement twice

Pension flexibilities Officer posts – not a practitioner post Practitioner post – GP partner, salaried GP, locum GP GP can hold both officer and practitioner posts at same time (e.g. CCG salaried board member) NHS Pensions will use most favourable method to calculate pension Separate Officer and Practitioner pension Practitioner pension that takes account of Officer membership (most common) Practitioner pension that includes some Officer membership and separate Officer pension for remaining Officer membership

Pension flexibilities Example 1: Dr Trott with 8 years hospital service – final salary £40,000 Followed by 26 years as GP – CARE £2.5 million Member of 1995 Scheme Separate officer and practitioner pension £ Officer£40,000 x 8 / 80ths4,000 Practitioner£2.5 million x 1.4%35,000 39,000 Practitioner pension that takes account of officer membership Practitioner£2.5 million x 1.4% x 34 years / 26 years45,769

Pension flexibilities Example 2: Dr Trott takes up CCG post for 2 days per week – full-time equivalent salary of £120,000 CARE has grown from £2.5 million to £2.7 million Practitioner pension that includes some Officer membership and separate Officer pension for remaining Officer membership £ Officer (CCG)£120,000 x 0.4 / 80ths600 Practitioner£2.7 million x 1.4% x 35 years / 27 years49,000 49,600 Practitioner pension that takes account of officer membership £ Practitioner£2.748 million x 1.4% x 35 years / 27 years49,871 Separate officer and practitioner pension £ Officer£120,000 x 8.4 / 80ths12,600 Practitioner£2.7 million x 1.4%37,800 50,400

Annual allowance and Scheme Pays Example 3: Dr Trott annual allowance calculation for 2014/15 Assume no unused relief from previous three years Annual allowance for 2014/15 is £40,000 Annual allowance excess £64,510 - £40,000 = £24,510 Assume 40% tax rate Annual allowance tax charge £24,510 x 40% = £9,804 DatePensionX 19 = capital value RevaluationGrowth 31 March 2014£45,769£869, %£893, March 2015£50,400£957,600 £64,510

Annual allowance and Scheme Pays A “Scheme Pays” option is available if the tax charge is in excess of £2,000 Election required Reduction in pension based on tax paid plus interest (at CPI + 3%) Factor based on age / gender when pension drawn Example 4 Dr Trott has annual allowance tax charge of £9,804 At time of retirement including interest, charge has increased to £10,800 Male age 60 – factor 21.6 Reduction in pension = £500 (£300 after tax) Reduction in lump sum = £1,500

Annual allowance Interaction between CPI uplift and dynamisation Dynamisation is CPI + 1.5% but years are out of sync YearCPIDynamisationDifference 2008/091.8%6.5%4.7% 2009/105.2%1.5%-3.7% 2010/111.1%4.6%3.5% 2011/123.1%6.7%3.6% 2012/135.2%3.7%-1.5% 2013/142.2%4.2%2.0% 2014/152.7% 0.0% 2015/161.2%??

Lifetime allowance Tax charge of 25% of excess over lifetime allowance Collected by assuming you will draw pension for 20 years Capital value = 20 x pension + lump sum

Lifetime allowance Example 5 Dr Trott decides to retire age 59 Pension of £52,000 and lump sum of £156,000 After early retirement factors Pension £52,000 x = £49,556 Lump sum £156,000 x = £151,320 Capital value £49,556 x 20 + £151,320 = £1,142,440 Excess over lifetime allowance of £1 million = £142,440 Reduction in pension £142,440 x 25% / 20 = £1,781 Actual pension: £49,556 - £1,781 = £47,775

Lifetime allowance Abating pension for lump sum reduces lifetime allowance charge Excess over lifetime allowance of £1 million = £65,704 Reduction in pension £65,704 x 25% / 20 = £821 Actual pension: £39,964 - £821 = £39,143 Pension without abatement after LTA charge was £47,775 Real reduction in pension is £8,632 for £115,104 lump sum (1 for 13.33) PensionLump SumCapital value £££ Before abatement49,556151,3201,142,440 Abatement(9,592)115,104 After abatement39,964266,4241,065,704

Lifetime allowance - protection Individual protection 2014 Capital value of all pension plans at 5 April 2014 (assuming normal retirement age) If this is greater than £1.25 million, lifetime allowance will be lower of: Capital value of all pension plans at 5 April 2014; and £1.5 million No downsides to individual protection Election must be made by 5 April 2017 NHS Pensions won’t accept valuation requests from GPs before May 2016 unless retirement is before that date Individual protection 2016 Expected to work in same way but based on value at 5 April 2016 and between £1 million and £1.25 million

Lifetime allowance - protection Fixed protection 2014 Fixed lifetime allowance at £1.5 million. Election had to be made by 5 April 2014 Benefit of fixed protection can be lost if any contributions to pension scheme after 5 April 2014 – beware auto enrolment Fixed protection 2016 Expected to work in same way but will fix lifetime allowance at £1.25 million Election to be made before 5 April 2016?

Personal pension plans Annual allowance Contributions to personal pension plans use up part of annual allowance Unlikely to be beneficial to contribute to personal pension plan if NHS pension uses up annual allowance Lifetime allowance Value of fund at drawdown will use up part of lifetime allowance Is it better to crystallise personal pension plan before or after NHS pension?

Personal pension plans Example 6 Dr Trott entitled to NHS pension of £52,000 and lump sum of £156,000 This has a capital value of £1,196,000 He has a personal pension plan worth £50,000 Assume lifetime allowance is £1,000,000 If he draws NHS pension first Excess over lifetime allowance is £196,000 Reduction in pension is £2,450 Pension after lifetime allowance charge is £49,550 (£52,000 - £2,450) 25% tax charge applied to whole of personal pension fund as lifetime allowance used up. Value of personal pension fund reduced from £50,000 to £37,500. If he draws personal pension first £50,000 of lifetime allowance used up out of £1 million - no tax at this stage Excess over lifetime allowance is £246,000 Reduction in pension is £3,075 Pension after lifetime allowance charge is £48,925 (£52,000 - £3,075)

Decisions, decisions How much income do I need in retirement? How large a lump sum do I want? Am I better off: Continuing to contribute and accepting annual and lifetime tax charges; Reducing hours and pensionable pay Stopping added years contributions but remaining a member of the scheme; Taking 24 hour retirement and drawing lump sum and pension before 60; Ceasing contributions and becoming a deferred member (watch loss of other benefits);

Q&A Questions? And hopefully Answers! Topics not covered Additional pension Early retirement reduction buy out (ERRBO)

Luke Bennett Alan Turner

(c) copyright Francis Clark LLP, 2014 You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by Francis Clark LLP in any format whatsoever unless you have obtained prior written consent from Francis Clark LLP to do so and entered into a licence. To the maximum extent permitted by applicable law Francis Clark LLP excludes all representations, warranties and conditions (including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by Francis Clark LLP. These materials and /or any services provided by Francis Clark LLP are designed solely for the benefit of delegates of Francis Clark LLP. The content of these materials and / or any services provided by Francis Clark LLP does not constitute advice and whilst Francis Clark LLP endeavours to ensure that the materials and / or any services provided by Francis Clark LLP are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by Francis Clark LLP; nor do we commit to ensuring that these materials and / or any services provided by Francis Clark LLP are up-to-date or error or omission-free. Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations on the re-use of Crown copyright extracts in England and Wales. These materials and / or any services provided by Francis Clark LLP are subject to our terms and conditions of business as amended from time to time, a copy of which is available on request. Our liability is limited and to the maximum extent permitted under applicable law Francis Clark LLP will not be liable for any direct, indirect or consequential loss or damage arising in connection with these materials and / or any services provided by Francis Clark LLP, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other liability is not excluded or limited. Disclaimer & copyright